SEC Charges Prager Metis for Securities Law Violations and Auditor Independence Breaches in Failed Cryptocurrency Exchange Case

B. Ali
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The SEC has recently taken significant action against Prager Metis, an accounting firm, due to its involvement with the cryptocurrency exchange FTX, which eventually faced failure. Prager Metis faces two serious allegations in this case.

Firstly, they are accused of aiding their clients in breaking US securities laws. Secondly, they are alleged to have breached regulations that mandate independence between auditors and the companies they are responsible for auditing.

In simpler terms, Prager Metis is in trouble for two reasons. They are accused of helping their clients do things that are against the law in the world of finance. And they also didn’t keep a proper distance from the companies they were supposed to be checking, which is a big no-no in auditing.

Hence, this action by the SEC is part of their efforts to make sure that financial firms and auditors follow the rules to maintain the integrity and fairness of the financial system. It’s a reminder that everyone, even accounting firms, must follow the same rules to keep the financial world honest.

SEC Accuses Prager Metis of Violating Auditor Independence Rules

According to the SEC’s complaint filed in a Florida court, Prager Metis allegedly included legal protection clauses in more than 200 contracts for financial audits and reviews from December 2017 to October 2020. During this period, the SEC asserts that Prager Metis failed to maintain the necessary independence from their clients, as required by U.S. securities laws.

Despite receiving multiple warnings from regulators that these actions were not in compliance, Prager Metis continued to use contracts with legal protection clauses and asserted their independence in their financial reports. Even more concerning, they failed to disclose these violations to their clients, even after being informed by the Public Company Accounting Oversight Board, a regulatory body, that such clauses violated the independence rules mandated by securities laws.

SEC Acts Against Prager Metis, Stresses Auditor Independence

In a press release, the SEC announced their legal action against Prager Metis, outlining several objectives. They seek a permanent order to prevent Prager from engaging in such actions. Additionally, they aim to recover any wrongfully obtained gains and additional compensation to account for the time value of those gains. The SEC also intends to impose a financial penalty.

The SEC underscores the vital significance of auditor independence, highlighting its role in maintaining the honesty of financial reporting and fostering trust with the public.

Although the official announcement doesn’t explicitly mention FTX or any other clients of Prager Metis, it’s worth noting that FTX had previously stated that Prager Metis had audited their financials for 2021. However, following FTX’s bankruptcy in November 2022, the new management expressed concerns regarding the accuracy and reliability of those audited financial statements this year.

 

About B. Ali PRO INVESTOR

Live webinar speaker and derivatives (Forex, Crypto, and Indices) analyst with a broad range of skills for evaluating financial data, investment trends, technical analysis, fundamental analysis, and the best ways to strategies investment selection.  Expertise: Trading Psychology; Speculative Positioning & Market Sentiment; Technical & Fundamental Analysis.